Oil Sanctions Would Have Little Impact on Russia

 Oil Sanctions Would Have  Little Impact on Russia
 Oil Sanctions Would Have  Little Impact on Russia

Stiff new US sanctions against Russia would only have limited impact on its oil industry because it has drastically reduced its reliance on western funding and foreign partnerships, and is lessening its dependence on imported technology.

Western sanctions imposed in 2014 over Russia’s annexation of Crimea have already made it extremely hard for many state oil firms such as Rosneft to borrow abroad or use western technology to develop shale, offshore and Arctic deposits, Reuters reported.

While those measures have slowed down a number of challenging oil projects, they have done little to halt the Russian industry’s growth with production near a record high of 11.2 million barrels per day in July, which is set to climb further.

Since 2014, the Russian oil industry has effectively halted borrowing from western institutions, instead relying on its own cash flow and lending from state-owned banks while developing technology to replace services once supplied by western firms.

Analysts say this is partly why Russian oil stocks have been relatively unscathed since US senators introduced legislation to impose new sanctions on Russia over its interference in US elections and its activities in Syria and Ukraine.

The measures introduced on Aug. 2, dubbed by the senators as the “bill from hell”, include potential curbs on the operations of state-owned Russian banks, restrictions on holding Russian sovereign debt as well as measures against western involvement in Russian oil and gas projects. While the rouble has fallen more than 10% and Russian banking stocks have slumped 20% since the legislation was introduced, shares in Russian oil firms have climbed 2%, leaving them 27% higher in 2018.

“The main driver of the Russian oil industry’s profitability is the oil price denominated in rubles and it is currently posting new records as the rouble is getting weaker. Hence, the sanction noise often even has a positive impact on Russian oil stocks,” said Dmitry Marinchenko at Fitch Ratings.


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